China, South Korea Approve Medtronic-Covidien Deal

MINNEAPOLIS (Minneapolis Star Tribune/TNS) -

Chinese and South Korean antitrust officials have signed off on Medtronic’s $42.9 billion acquisition of Dublin-based health-care supplier Covidien, providing the last of a dozen government approvals needed to close the deal.

The news comes the same week that Fridley, Minn.-based Medtronic sold $17 billion in commercial bonds to finance its acquisition — the largest sale of corporate debt of the year. Shareholders of both companies must also approve the acquisition during votes scheduled for Jan. 6. The merger is expected to close in early 2015.

Antitrust regulators in some 12 countries had to give their blessing to the tie-up, and the Chinese Ministry of Commerce on Thursday became the last to do so, along with the South Korean Fair Trade Commission. European and Canadian trade officials and the U.S. Federal Trade Commission approved the deal during Thanksgiving week, giving the Minnesota company a regulatory green light to move its corporate headquarters to Ireland.

Medtronic, which has about $17 billion in annual revenue, announced last June that it planned to acquire Covidien, a $10 billion company. The combined firm would be placed under a new holding company in Ireland, where corporate taxes are about one-third the U.S. rate of 35 percent. The new company will retain “operational” headquarters in Fridley.

Although both companies have thick product catalogs, there’s little overlap among their businesses: Medtronic is known mainly for its implantable, high-tech medical devices and therapies, while Covidien offers an array of supplies and smaller devices widely used in surgery and general hospital care.

One area of overlap was both companies’ pursuit of a new drug-coated balloon catheter for patients in the U.S. who have peripheral artery disease. Covidien agreed to sell its product, the Stellarex angioplasty balloon, to Colorado’s Spectranetics for $30 million to resolve concerns that the combination of the companies could diminish competition for the device.

Although the antitrust approvals came relatively smoothly, the deal has generated plenty of controversy in the tax world because it involves what’s known as a corporate inversion that moves Medtronic’s legal domicile to a lower-tax country.

Medtronic CEO Omar Ishrak told shareholders in August that the deal would make sense even without tax advantages. Company officials argue that the deal would be good for the United States, because the company committed to creating another 1,000 jobs in Minnesota and investing $10 billion in U.S. operations in the years following the merger.

Opposition to corporate inversions in the U.S. generally came as a surprise, Ishrak has said, because Medtronic officials hadn’t anticipated how many other companies would announce inversions around the same time.

As many as a dozen big U.S. companies proposed inverting this year, though the tax changes dashed some plans, including the biggest, a $54 billion proposal for Chicago’s AbbVie to acquire Dublin’s Shire PLC and move to Ireland.

“At the end of the day,” Ishrak told an audience at an industry event last month in Minneapolis, “we kind of saw it happen but we stuck to our strategy and our story, which we felt in the end, in its fundamentals, was right. And we still feel that.”